GOVERNANCE
GOVERNANCE
for more than three-quarters of their critical suppliers, at just 26%. While an ideal scenario would be that 100% of key suppliers have an effective contract and performance management framework in place, present feedback suggests that anything above 75% is stretching. Currently this territory is almost exclusively occupied by Leaders, 55% of whom report having solid contract and performance management in place for more than 75% of their key suppliers. Risk management 3 , alongside contract and performance management, represents part of fundamental good supplier management practice that SRM needs to be built on . The picture of risk management over the years has revealed a worrying lack of progress on getting it properly established as a core part of good supplier management. Our data shows that the number of companies reporting that effective risk management is in place for more than half of their key suppliers is fewer than one in four. Again we see a significant difference demonstrated by Leaders. Their more mature SRM programmes are built on a foundation of risk management where 85% of them have good practice in place for more than half of their key suppliers. Still not where it needs to be but an improvement.
It’s encouraging that almost three out of four organisations report including the requisite behaviours in their treatment strategies and for Leaders this figure is closer to nine out of 10.
Proportion of key suppliers where effective contract performance management risk management is in place
opinion State of Flux
Leader
Fast Follower
Follower
Governance models
75% – 100%
An appropriate governance model is an essential part of a supplier management treatment strategy. It provides for the necessary oversight and also the format and cadence of reporting and meetings that will keep the relationship on track. The term ‘Governance model’ is often used to describe a whole range of the management activities that need to be put in place to varying levels of intensity depending on the segmentation output. Typically it will include, key roles and responsibilities, meetings with agreed terms of reference, and reporting requirements. As in previous years it’s evident that establishing the necessary governance model is not treated as a priority by enough companies. Overall, the feedback indicates that only 57% have what they would describe as an effective governance model in place for more than half of their key suppliers. While this figure increases to more than 90% for Leaders it still shows there is considerable room for improvement. It means a lack of oversight and compliance that could represent a significant risk to businesses.
56%
35%
12%
50% – 75%
35%
41%
32%
In the post-Covid world, the segmentation of suppliers is bound to take on a new dimension with supply chain vulnerability and the risk to free cross-border trade being a factor. Having a dynamic approach to segmentation and making sure that it aligns well with your objectives will be key. To learn more about how to approach segmentation you can download our white paper Segmenting for Value. Treatment strategies are what turns segmentation into action. It’s at this stage that the component parts of supplier management come together to provide a cohesive approach focused on achieving desired objectives. These can range from basic transactional efficiency and low-cost-to- manage, right through to a genuinely strategic relationship. Contact enquiries@stateofflux.co.uk to learn more about the relationship between segmentation and treatment strategies and practical approaches. Any attempt to create a more collaborative and strategic relationship seeking out incremental value will be jeopardised without a platform of solid performance. That’s not to suggest that 100% performance is required before the conversation can start, but at the very least their needs to be appropriate KPIs in place and measured to establish a road map to achieving satisfactory performance. Another legacy of Covid-19 should be the long overdue recognition of risk management as a vital component of good governance. However, as with any discipline that is to some degree neglected, the experience and skills required are also lost. Our research into the skills and competencies that organisations have reveals only around 70% believe they possess the necessary resources and skills to manage supply risk effectively. To find out more, listen to our 2020 webinar Covid-19 - Implementing supplier management at speed in times of crisis.
Less than 50% 8%
23%
55%
Risk Management
Leader
Fast Follower
Follower
75% – 100%
53%
The more mature SRM programmes of Leaders are built on a foundation of effective performance, contract and risk management.
28%
13%
50% – 75%
31%
43%
30%
15% Less than 50%
Contract performance and risk management
29%
57%
The failure to put in place effective 2 contract and performance management continues to confound logic. The analysis reveals that companies do too little to put in place the fundamentals of good supplier management. It’s these building blocks that enable internal conversations with stakeholders to progress beyond the operational and become discussions about collaboration and mutual value. This year’s results show a slight decrease from 2019 in the number of companies with effective contract and performance management in place
Snapshot analysis
The failure of organisations to recognise the importance of managing the basic contractual and performance aspects of their relationship with key suppliers not only represents risk to the business, it also makes conversations with internal stakeholders about stepping-up to SRM that much harder.
Companies do not invest sufficiently in putting in place the fundamentals of good supplier management.
48 STATE OF FLUX
2020 GLOBAL SRM RESEARCH REPORT
49
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